An Off-Price Retailer as Impressive as TJX Companies

If you follow this column, then you might have noticed that it's primarily focused on consumer goods. So, there are just as many bearish articles as bullish articles, which stems from increased competition combined with a weak consumer. However, when a company's strategy matches the new consumer environment, it's exciting, as these businesses are likely to present quality investment opportunities.

Clear winners
If you read "TJX Companies: To $40 Billion and Beyond!" then you should expect to find a lot of the same types of numbers and expectations here. This shouldn't come as much of a surprise considering Ross Stores (NASDAQ: ROST  )  -- the primary focus of this article -- and TJX Companies (NYSE: TJX  ) are both off-price retailers that offer 20%-60% off department store prices. This attracts many of today's value-conscious consumers.

TJX Companies is larger, with retail brands like TJ Maxx, Marshalls, and HomeGoods. Ross Stores owns retail brands Ross Dress for Less and dd's Discounts. While these companies might vary in size, with TJX sporting a market cap of $41.17 billion and Ross Stores sporting a market cap of $15.97 billion, their performances over the first half of the year are eerily similar.

For instance, Ross Stores grew sales by 8.4% in the first half of the year while TJX saw 8% revenue growth. They both saw 3% comps growth in the first half of the year. And while Ross Stores bought back $277 million worth of stock, TJX purchased $625 million of its own shares.

Looking ahead, Ross Stores plans on buying back a total of $1.1 billion over a two-year period, which began this year. And TJX plans on purchasing a total of $1.3 billion to $1.4 billion for its 2013 fiscal year. Therefore, both companies will be helping their bottom lines through capital reinvestment.

Speaking of bottom lines, Ross Stores recently upped its 2013 earnings-per-share guidance to $3.80-$3.87 from $3.53. And it should be noted that TJX expects EPS of $2.74 to $2.80, versus $2.55 last year.

If you want to see just how close these two perform, check out the charts:

ROST Revenue TTM Chart

ROST Revenue TTM data by YCharts.

KSS EPS Diluted TTM Chart

KSS EPS Diluted TTM data by YCharts.

If you feel the need to choose one over the other, you might be tempted to look at dividends as a determining factor. But, you won't find much difference there, either. Ross Stores is currently yielding 0.90%, whereas TJX yields 1.00%. This gives TJX a slight edge, but the debt-to-equity ratio for Ross Stores of 0.08 is more impressive than TJX Companies at 0.33.

Clearly, both companies manage debt well. They're also trading at similar valuations, with Ross Stores trading at 17 times forward earnings, and TJX Companies trading at 18 times forward earnings. While there is often a clear winner in a competitive arena, these two companies are deadlocked when it comes to investment potential.

A similar yet different type of investment
In the revenue and EPS charts above, you might have noticed Kohl's (NYSE: KSS  ) . It lagged its peers in both areas. However, Kohl's yields a generous 2.70%, and its debt-to-equity ratio of 0.76 is respectable. In regards to growth, Kohl's is opening three new stores this fall while remodeling 30 others.

The remodeled stores are expected to improve the customer shopping experience, with new checkout areas, a larger customer service area, redesigned fitting rooms, free WiFi, and new shopping carts. This is just part of Kohl's focus on improving its omni-channel operations -- Kohl's wants to make it easy for customers to shop from their mobile devices.

Kohl's, by the way, is trading at just 12 times forward earnings. While Kohl's is likely to reward investors over the long haul, and its generous yield is a big bonus, it still might be worth paying up for Ross Stores or TJX Companies considering their ideal positioning to match current consumer demands.

Foolish bottom line
If you want yield, Kohl's isn't a bad option. But, if you want growth in the retail space, then you're not going to find many better options than Ross Stores or TJX Companies. Both companies are seeing consistent top and bottom-line growth, they manage debt well, they offer small yields, and most importantly, they're in-line with industry trends, which should lead to continued outperformance. 

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